Rights of Man
Lyman Abbott
[Reprinted from Outlook, Vol. 68, pp.
171-176. 18 May 1914]
At present the expenses of governments are chiefly met by three forms
of taxation : a tariff tax on imports, a tax on incomes, and a tax on
property, real and personal.
The tariff on imports is an unjust tax because it is levied, not upon
property nor on income, but upon expenditure. The rich man calls on
government for much greater protection than the poor man. If he is a
landlord, he has a hundred houses to be protected; the poor man has
but one. If he is stockholder in a great railroad, he has a highway
thousands of miles long to be protected, while the poor man has
nothing but the pathway from his front door to his gate. The rich man
ought therefore to pay a very much larger tax than the poor man. It
ought to he proportioned to the value of his property, because the
value of his property determines, roughly speaking, the amount of
protection which he needs. He who has fifty millions of dollars
invested in mines, railroads, oil-wells, ought to pay nearly ten
thousand times as much taxes as the householder who has a home in the
village or a farm in the country worth five thousand dollars. But if
the tax is levied upon imports, he who has fifty million dollars to
protect does not pay ten thousand times more taxes than he who has
five thousand dollars in a homestead to be protected. The millionaire
wears somewhat more expensive clothing, lives in a somewhat more
expensive house, has somewhat more expensive furniture, eats somewhat
more expensive food; but it is perfectly evident that he cannot, if he
tries, expend on himself and his family ten thousand times as much as
his humbler neighbor. Taxes, therefore, levied on expenditure are
always and necessarily unjust.
The second tax is one on incomes. The income can generally be
ascertained only by the statement of the man who has the income; an
income tax, therefore, tempts every man to make false statement of his
income, in order to reduce his tax. A tax system which involves
wholesale temptation is not a system to be commended if any better one
can be found. But this is not all. Men who live upon salaries can
state their income accurately; men who live upon profits derived from
business cannot state their income accurately. It often happens that a
business man cannot tell in any given year whether he has made any
profit. He never can tell accurately how much profit he has made, for
he must always make allowance for the rise in value of some things he
has purchased and the fall in value of others, and this estimate of
stock in hand is rarely more than a shrewd guess. An income tax,
therefore, falls proportionately more heavily on the man whose income
is in salaries or wages than on the man whose income is in profits.
That is, it falls more heavily on the dependent, if not on the poorer,
classes. But that is not all. Income, again, may be derived from
industry, or it may be derived from investment. The investment is
property which the government must protect, and the protection of this
property requires governmental expenditure, while the protection of
the individual requires but little governmental expenditure, and
practically no more for the man who is earning a hundred dollars a day
than for the man who is earning one dollar a day. An income tax,
therefore, is, in the third place, inequitable because it is not
proportioned to the expenditure demanded of the government by the
persons taxed. A tax on income derived from industry is a tax on
industry itself, which should be the last to be taxed.
The third source of government revenue is a tax upon property, real
and personal. If the value of all property, real and personal, could
be justly estimated, and the tax could be levied on the property thus
estimated in the proportion of its actual value, the result would be a
just and reasonable tax; but in effect this is impossible. For
government is dependent upon the citizen's own statement for its
knowledge of the citizen's personal property. It is largely dependent
on his statement for its estimate of the value of that property. The
citizen is thus brought under temptation both to conceal the
possession of personal property and underestimate its value, and in
point of fact this temptation is so considerable that personal
property largely escapes taxation. This escape of personal property
from taxation is so common, and the frauds and falsehoods into which
men are led by the desire to secure the same exemption which their
neighbors secure is so great, that the abolition of all tax on
personal property has been very earnestly urged by both moral
reformers and financial reformers in the interest both of simplicity
and of justice. Yet it seems difficult, if not impossible, to defend
on abstract principles a system of taxation which levies all the
expenses of government on real estate, for no other reason than that
real estate cannot be hidden away from the assessor's inspection. Why
should the man who has put his industry into a house pay a tax, while
the man who put his industry into horses, carriages, dresses, or bank
stock -- that is, money loaned to others - not pay a tax? The one
derives benefit from the government no less than the other. Justice
would seem to require that he should pay as well as the other.
The so-called Single Tax proposes to rid government of all these
perplexities by assuming as true what in the previous article I have
tried to show is true, that land and its contents are not proper
subjects of private ownership; that the land which in the Hebrew
commonwealth belonged to God, and in the feudal system belonged to the
king, in a republic belongs to all the people. It proposes to make
them the landlord, and it asserts that if as landlord they receive a
rental which fairly represents the value of the land and its contents,
no one will need to pay any taxes; that if, in other words, the people
come by their own, they have income enough for all the expenses of
government, and probably some to spare.
Thus properly speaking, the Single Tax is not a tax at all. It is an
exemption from all taxation by means of a resumption of the
commonwealth by its owners, the common people. What would be called a
tax would really be a rental, and this rental would be based, not on
the idea that the man who pays it pays for the protection which
government affords his property; it would be based on the idea that
the man who pays it pays to the owner of the land a rental for the
land of which he is the tenant. This rental would be paid, or this tax
would be levied, not on real estate, but on land and its contents. All
that human industry had done to improve the land would belong to the
owner - he would pay no tax on it; all the value inherent in the land
as God has made it, or added to the land by what the public has done
for it, would belong to the public, and this value the public would
receive, in rental, or taxation.
Thus, let the reader imagine two plots of ground, each one hundred
acres in extent, side by side in a rural district where wild land
sells for five dollars an acre. One of them is wild. No tree is
felled, no plow has ever turned the virgin soil, no fence has been
erected. Everything is as nature made it. The other is a cultivated
farm, with house, barns, outhouses, orchard, cultivated meadow-land.
The uncultivated land is worth in the market five hundred dollars; the
cultivated farm would be worth five thousand dollars. But for purposes
of taxation each would be estimated as worth five hundred dollars, and
on that five hundred dollars the tax or rent would be estimated, and
for the simple reason that the man who had built the house and the
barn and the outhouses, and planted the orchard, and constructed the
fences, would not pay any tax on this wealth, which is the product of
his industry. Of this the people are not the owners; he is the owner.
Or, again, let the reader imagine two lots side by side in the center
of a great city, where a lot one hundred feet by fifty is worth a
thousand dollars. One stands vacant; on the other a
ten-thousand-dollar building has been erected. On each lot the same
tax would be paid, or, to speak more accurately, for each lot the same
rent would be collected, because the owner of the building would pay
no rent for that building, which is the product of his industry; he
would pay rent only for the land, which is not the product of his
industry, the value of which has been created partly by the God who
made it, partly by the entire community who live in its vicinity, and
who, therefore, should receive the benefit of the value which their
presence and activity have conferred upon it.
In a similar manner the owner of a mine - whether coal, gold, copper,
or iron - would pay in rent the value of the mine as fairly estimated
before ever a pick had been put into the hillside. All the product of
the industry which had opened up the mine and made its treasure
available would belong to him. All the value of the mine as raw
material, and all the increased value of that mine due to the opening
of railroads, the increase of population, the development of
civilization, would belong to the State, not to the owner, because it
would be the gift of God enhanced by the product of the general
activity of the community. The value thus added by the general social
conditions which surround land is the "unearned increment"
of which the reader so often hears in the discussion of this subject.
But, as we have seen, it is not only land and its contents that
belong to the public. Forces of nature belong to the public also. The
right of the public to these forces is now recognized by our patent
laws, which give to the patentee a right to his special use of them
only for a limited term. It is quite conceivable that these patent
laws should be so modified as to enable government, and perhaps any
individual, to take advantage of the patented device on paying, not
whatever the patentee may choose to ask for his device, but what a
disinterested tribunal may think that it is worth. Not only the forces
of nature, but the great franchises created by the state, belong to
the state. The exclusive right to run a car-track through the street
of a great city, the exclusive right of a railroad corporation to run
a railroad from New York to Buffalo, belongs primarily to the people,
in the one case of the city, in the other case of the state. That it
belongs to them is evident from the fact that the track cannot be laid
down in the street of the city, nor the railroad built from New York
to Buffalo, without special authority from the people. The work which
the car company or the railroad corporation does is to be paid for.
The fruit of their industry belongs to them. But the highway of which
they make use in their industry belongs to the people of the city or
the state, and the so-called tax paid by the railroad corporation
should be so adjusted that the industry of muscle and of brain which
has produced and carried on the railroad shall receive its just
compensation, which should be paid to those who have constructed and
are managing the railroad; and the rental of the highway, whether in
the municipality or across the state, should be paid to the people to
whom that highway really belongs.
This rental may be charged either in the form of a tax or in the form
of a rental. Hitherto franchises, that is, the exclusive right to use
a public highway, have been given to private owners, personal or
corporate. Sometimes, as in the case of the Pacific Railroad, not only
the highway has been given, but a bonus has been added in order to
induce the private owner to take the highway as a gift. This was
always folly. The folly has been now so demonstrated that to continue
to give away these highways is scarcely less than criminal. A single
case will serve to illustrate the value to a city which takes
possession of its highway and rents it instead of giving it to a
corporation.
The Boston subway has been let to the corporation which operates the
trolley-cars of that city for 4 7-8 per cent annually on the cost.
This 4 7-8 per cent meets all interest on municipal bonds, and leaves
a surplus sufficient to repay the entire principal invested in less
than forty years. The corporation which has hired the subway has
leased its lines to another corporation which guarantees seven per
cent on its common stock and eight per cent on its preferred stock.
That is, in the city of Boston, the corporation which operates the
trolley-car system makes a profit such as enables it to give
satisfactory dividends to its stockholders and pay the whole cost of
the subway, principal and interest, in less than forty years. The city
of New York, learning a lesson from this and other analogous
experiments, has now in a similar manner undertaken to build its own
subway. It will build this on money borrowed upon its bonds. It has
already leased this subway to a corporation on such terms that at the
end of the fifty years the bonds, principal and interest, will have
been paid. In other words, the subway will belong to the municipality,
though it will not have expended a dollar of the people's taxes in its
construction. It is clear that the same principle might be applied to
surface roads in town and country, long or short, operated by steam or
operated by electricity. Whether this rent shall be paid for the
highway by the railroad corporation in the form of a rent or in the
form of a tax is immaterial. The essential fact to be noted is that,
if the people keep possession of the highways which belong to them,
the rentals therefrom would go far toward paying the expenses of the
government.
It does not come within the province of this article to go into
detailed argument with figures in support of any particular scheme. My
object is to give the general reader as clear and coherent an account
as I can, in a limited space, of the method which modern thinkers have
wrought out, by which the common people can secure joint benefit of
the common wealth, without revolution. He who desires to study the
philosophy of this plan more fully will find material for his study in
Henry George's Progress and Poverty. He who desires to
estimate scientifically its economic effect will find material for his
study in Thomas G. Shearman's Natural Taxation. He will in the
latter book find reasons given for the belief that a fair rental to
the people as landlord for the value of wild land and its contents,
and of public franchises created by and belonging to the people, would
be adequate to pay all the expenses of government, municipal, state,
and federal. He will also find there given the reasons for believing
that such a rental, instead of increasing the burdens of the
agricultural class, would decrease them; and, finally, the reasons for
believing that such a rental could be collected with almost absolute
equity, since there would be no possibility of concealing, the land or
the franchise for which the rent would be paid, and not much
difficulty in estimating their natural market value. This last, the
moral argument for the Single Tax, will, to him who regards ethical
considerations as more important than economic, appear of the first
importance, it is thus stated in a recent letter by Mr. Charles
Francis Adams:
On this moral side, which to my mind is the most
important side of all, there can, so far as I see, be but one way of
looking at the thing. The Single Tax would be an enormous
improvement over the existing system, or over any other system which
I think could be devised. It would reduce taxation to a basis of
absolute certainty and fairness, rendering evasion impossible. A
complete stop would thus be put to the whole system of cheating, and
consequent unjust transfer of a burden from those who have no
conscience to those who have a conscience - from those who can
escape the law to those who cannot escape the law - which is the
unanswerable argument against the continuance of the present system
- a system which puts a confessed, because quite undeniable, premium
on perjury; and no system which puts a premium on perjury admits of
justification. This argument alone, to my mind, would be conclusive
in favor of the Single Tax. Any possible amount of wrong or injury
it might incidentally inflict would to my mind be little more than
dust in the balance compared with the advantage which would result,
after the thing fairly adjusted itself, from the complete freedom it
would bring about from all temptation to evasion and false swearing.
From the moral point of view, consequently, there do not seem to be
any two sides to the question; and the moral point of view is, in my
judgment, the all-important point of view.
The question may be and has been asked. Would not the carrying out of
this plan amount to a confiscation of landed values? Henry George
concedes that it would, and defends such confiscation on the ground
that land is not a proper subject of ownership. He compares the loss
to the landowner involved in the Single Tax with the loss to the
slaveholder involved in emancipation. The cases do not seem to me
parallel. Society has no right to organize a system involving
ownership of man; society has a right to organize a system, involving
ownership in land. If the community thinks the private ownership and
control of land is best for the community, it has a right to provide
for such private ownership and control; but it has no right to provide
for the private ownership and control of one man by another, against
the protest of that other, though he be but a minority of one. Society
having provided for the private ownership and control of land, and
individuals having invested their earnings in that land on the faith
of that provision of society, society has no right by revolutionary
act to confiscate the property and destroy for the individual owner
the economic values which it has itself created. If, therefore, it
were proposed suddenly to abolish all taxes on imports, on incomes, on
personal and real property, and levy them all on land and its contents
and on franchises, the proposition would involve an industrial
revolution which would be at once inexpedient and unjust. But no such
sudden change is possible. If taxation is taken off from all other
objects, and levied only on those things which are properly a common
wealth, the change can be wrought out gradually, and there will be
time for industry to adjust itself to the new conditions as they are
created. There is very little reason to believe that the practical
injustice to individuals which would grow out of the adoption of the
Single Tax theory, in any way which would be possible in America,
would be so great as the injury which has come to individuals through
the use of steam and' electricity, through the influence of machinery,
through the organization of labor and of capital, and through the
consequent necessary changes in industrial conditions and in values
depending on those conditions.
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